By Adam Larkin
The recently passed Big Beautiful Bill introduces new tax-saving provisions that have received widespread media attention. These include an increase in the ability to deduct state and local taxes (SALT), an expanded deduction for certain seniors (framed as eliminating tax on Social Security benefits), and a deduction for interest on auto loans for vehicles built in the United States.
While each of these changes appear to provide benefits to many taxpayers, there’s a catch that rarely makes the headlines: these benefits are subject to income phaseouts.
Phaseouts are thresholds that gradually reduce or eliminate certain tax benefits as your household income increases. They can significantly impact tax planning by making anticipated deductions less valuable or eliminating them entirely.
Phasing out tax benefits of higher income taxpayers is not a new concept. Prior to the BBB, the tax code already included various provisions that limited high income earners: including the ability to make Roth IRA contributions, qualify for the Child Tax Credit and deduct student loan interest.
This article highlights three key provisions of the BBB that are subject to income limits, explains how they generally work, and explores planning strategies to help minimize their impact. What makes planning so complicated is that each provision is subject to different income phaseouts.
SALT Deduction
Since 2017, the maximum amount of state and local taxes (SALT) that could be deducted on a federal return was capped at $10,000. Beginning in 2025, that cap increases to $40,000. This change is significant because many taxpayers may now have deductible expenses that exceed the standard deduction, making itemizing worthwhile again.
The standard deduction is a fixed amount the IRS lets you subtract from your income before calculating taxes. For 2025, the standard deduction is $14,600 for single filers and $29,200 for married couples. Instead of tracking individual expenses like mortgage interest, charitable gifts, or state and local taxes, most taxpayers simply take this flat deduction because it’s larger. With the SALT cap rising from $10,000 to $40,000, some high earners will find their itemized deductions surpass the standard deduction for the first time in years.
There is, however, an important catch: taxpayers with modified adjusted gross income (MAGI) between $500,000 and $600,000 will see the value of this higher SALT cap gradually phased out. In other words, households with income in excess of $600,000 will see no benefit from the change.
Example: How the SALT Deduction Phaseout Works
A married couple in California has:
- $50,000 in state and local taxes (SALT)
- $10,000 in charitable contributions
- Total potential itemized deductions: $60,000
The standard deduction for couples in 2025 is $29,200, so only the amount above that threshold actually reduces taxable income.
- If their MAGI is $400,000: They can deduct up to the $40,000 SALT cap, plus $10,000 in charitable giving = $50,000 total. Compared to the $29,200 standard deduction, they gain an extra $20,800 in deductions. At the 35% bracket, that saves about $7,280 in federal taxes.
- If their MAGI is $600,000: They are fully phased out of the SALT benefit. Their deductions are limited to the $10,000 of charitable giving. Since that’s less than the $29,200 standard deduction, they simply take the standard deduction. Tax savings from the higher SALT cap: $0.
- If their MAGI is $550,000: Their SALT deduction is reduced to $25,000 (instead of the full $40,000). Adding $10,000 of charitable giving, they have $35,000 in total itemized deductions. Compared to the $29,200 standard deduction, the net benefit is $5,800. At the 35% bracket, that translates to about $2,030 in tax saving.
Enhanced Senior Deduction (65+)
During the legislative process, there was significant discussion about eliminating taxes on Social Security benefits altogether. Currently, single taxpayers with provisional income above $34,000 are taxed on up to 85% of their Social Security benefits. For married couples filing jointly, the threshold is $44,000. Eliminating this tax entirely proved too costly, so the Big Beautiful Bill took a different approach to help seniors.
Starting in 2025, taxpayers age 65 and older may claim an additional $6,000 deduction per individual ($12,000 for couples), depending on their income level. This benefit applies whether you itemize deductions or take the standard deduction. Importantly, you do not need to be collecting Social Security to qualify – eligibility is based solely on age (65+).
The deduction phases out by 6% for every dollar of MAGI above $75,000 (single) or $150,000 (married filing jointly). It is fully phased out at $175,000 of MAGI for single filers and $250,000 for married couples.
Planning Insight: Seniors close to these thresholds may benefit from strategies like managing IRA withdrawals, harvesting losses to offset gains, or making qualified charitable distributions. Each of these can help keep MAGI below the phaseout range and preserve the full deduction.
Example: Managing MAGI to Unlock the Enhanced Senior Deduction
A married couple (ages 66 and 63) wonders if they qualify for the new enhanced senior deduction. Both are retired with sizable balances in pre-tax retirement accounts and taxable investment accounts. Last year, they withdrew from their IRA in a way that pushed their MAGI to $200,000, which kept them within the lowest Medicare premium bracket.
This year, they want to take advantage of the senior deduction. By using available taxable assets instead of tapping their IRA, which keeps their MAGI at $140,000. At that level, they qualify for the full $6,000 deduction—because only one spouse is currently age 65 or older.
It’s important to note that the phaseout thresholds are based on filing status, not the number of eligible individuals. That means the income limits are the same whether one or both spouses qualify. Once the younger spouse reaches 65, the couple will be eligible for the full $12,000 enhanced deduction, assuming they keep their MAGI below the $150,000 phaseout threshold.
How Income Affects the Enhanced Senior Deduction
Let’s return to the same married couple (ages 66 and 63). This year, instead of drawing from taxable accounts, they withdraw more heavily from their IRA. As a result, their MAGI rises to $180,000.
- Phaseout threshold: For married couples, the deduction begins to phase out at $150,000.
- Excess over threshold: They are now $30,000 above the limit.
- Phaseout reduction: With the 6% phaseout rate, their $6,000 deduction is reduced by $30,000 × 6% = $1,800.
- Result: The couple is only able to claim a $4,200 deduction instead of the full $6,000.
This example highlights how even modestly higher withdrawals from pre-tax accounts can reduce the value of the enhanced senior deduction—and why thoughtful income management is key.
Auto Loan Interest Deduction
One of the focus areas of the Big Beautiful Bill was encouraging U.S. manufacturing. To support this, a new provision allows taxpayers to deduct up to $10,000 of interest on “applicable passenger vehicles” manufactured in the United States.
It’s important to note this is not about whether the brand is American or foreign—it’s specifically about where the vehicle is assembled. Confirming whether a particular vehicle qualifies will be critical before claiming the deduction.
This is an above-the-line deduction, meaning it reduces taxable income regardless of whether the taxpayer itemizes deductions. However, the benefit is subject to income limits. The phaseout begins at MAGI of $100,000 for single filers and $200,000 for married couples filing jointly. For every $1,000 of MAGI above those thresholds, the deduction is reduced by $200. The benefit is fully phased out at $150,000 MAGI for single filers and $250,000 for married couples.
Planning Insight: For households near the phaseout thresholds, the timing of vehicle purchases, and financing decisions could make a big difference. A strategically timed car loan could mean capturing thousands in deductions—or losing the benefit entirely. It is also important to note that the income limits will apply each year the loan is in place.
Example: Auto Loan Interest Deduction in Action
A married couple filing jointly finances a U.S.-built SUV and pays $8,000 in interest on the loan in 2025. Their MAGI is $225,000.
- Phaseout threshold: For joint filers, the deduction begins phasing out above $200,000.
- Excess over threshold: They are $25,000 over the limit.
- Phaseout reduction: At $200 of reduction per $1,000 of income, their deduction is reduced by $25,000 ÷ $1,000 × $200 = $5,000.
- Result: Their allowable deduction is $3,000. If their income were $250,000 or higher, the benefit would be fully phased out and no deduction would be available.
Key Provisions at a Glance
| Provision | Maximum Deduction | Single Filer Phaseout | Married Filing Jointly Phaseout |
| SALT Deduction | $40,000 | Starts $500,000, ends $600,000 | Starts $500,000, ends $600,000 |
| Enhanced Senior Deduction (65+) | $6,000 per eligible individual | Starts $75,000, ends $175,000 | Starts $150,000, ends $250,000 |
| Auto Loan Interest Deduction | $10,000 | Starts $100,000, ends $150,000 | Starts $200,000, ends $250,000 |
How to Plan
Because phaseouts can quietly erode benefits, planning ahead is critical. A few strategies to consider:
- Reduce MAGI through pre-tax contributions. Maximize 401(k), HSA, or traditional IRA contributions. For example, a couple making $525,000 could increase contributions to retirement plans and bring their MAGI below the $500,000 SALT deduction threshold.
- Defer income when possible. Executives and high-income earners may use deferred compensation plans or time bonuses and stock option exercises to stay under key thresholds.
- Leverage charitable giving strategically. Donor-advised funds or bunching charitable gifts in low-income years can push itemized deductions higher when you’re under phaseout levels.
- Coordinate withdrawals in retirement. Retirees should carefully balance withdrawals from pre-tax and taxable accounts in order to keep MAGI low enough, if applicable, to preserve deductions like the enhanced senior benefit.
Conclusion
The Big Beautiful Bill expands deductions and introduces new tax benefits, but income phaseouts determine who actually gets to enjoy them. For high-income households, the difference between qualifying and phasing out could be up to thousands of dollars in lost deductions.
The good news: Proactive planning by reducing MAGI, shifting income, or boosting other deductions can help you maximize your share of these new opportunities.
At Blue Chip Partners, we take time to guide our clients through the individualized financial plans, helping your investment strategies align not just with the headlines, but with the tax thresholds that matter most to your plan.
Disclaimer: Individual views and opinions included herein may not necessarily reflect the views and opinions of Blue Chip Partners, LLC. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for individualized financial, tax, legal or accounting advice. You should consult your own professional financial, tax, legal, accounting, or equivalent professional prior to making any investment decision. All investments involve a degree of risk, including the risk of loss. Past performance is not indicative of future results.
